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2 Automobile Insurance in the Era of Autonomous Vehicles KPMG U.S. recently published two documents on Automobile insurance in the era of autonomous vehicles Video: Driverless vehicles This presentation is based on the publications from KPMG LLP (U.S.). 1

3 Agenda Alignment for Mass Change 8 elements for transformation 4 phases to a new normal What Now? Timing Potential impact on insurance A new insurance landscape Future State Implications for Insurers Call to action 2

4 Alignment for Mass Change Eight Key Elements for Transformation Mobility Services Integrity of Technology Legal Responsibility Infrastructure Availability Interactions between elements are dynamic Advances in one area may act as catalyst for progress in others 3

9 Alignment for Mass Change Regulatory Permission National Highway Traffic Safety Administration released a report that states: new possibilities for improving highway safety, increasing environmental benefits, expanding mobility, and creating new economic opportunities on the threshold of a period of dramatic change in the vehicles we drive Meanwhile in Ontario Government pledged roughly $3 million in funding to Ontario Centres of Excellence Connected Vehicle/Automated Vehicle Program 8

13 Alignment for Mass Change Data Management Data Management Data Security Information Privacy Data Analytics A tsunami of data will roll in Autonomous driving will face serious security threats Individual privacy may become harder to achieve The ability to gather, aggregate and harness the data will be critical 12

14 Agenda Alignment for Mass Change 8 elements for transformation What Now? Timing 4 phases to a new normal Potential impact on insurance A new insurance landscape Future State Implications for Insurers Call to action 13

15 Timing Four Phases of Transformation Training Wheels Now First Gear Acceleration Full Speed Introduction to autonomous vehicles High-tech companies express interest Partial driver substitution technology More consumers experience technology Potential mandate for V2V communications Fully autonomous all-speed vehicles V2V capabilities likely embedded in new vehicles Increase in scale drives down costs Broad-based transformation begins New vehicles have autonomous capabilities A new normal realized by 2040 No crystal ball to predict future We envision four potential incremental changes to transformation over next 25 years, with foundation laid for a new normal within a decade 14

17 Agenda Alignment for Mass Change 8 elements for transformation What Now? Timing 4 phases to a new normal Potential impact on insurance Future State Implications for Insurers A new insurance landscape Call to action 16

18 Implications for Insurers Potential Impact to Different Coverages Auto insurance Claim frequency will fall, ultimately leading to lower premiums Life and annuities Mortality tables will be impacted road traffic accidents leading cause of death for ages 15 to 34 Health insurance Need to modify processes for auto accident related health claims Workers compensation 6% of claims costs arise from auto accidents Source: KPMG LLP (U.S.) actuarial analysis estimates based on data from the U.S., and US Centers for Disease Control and Prevention (2010) 17

23 Agenda Alignment for Mass Change 8 elements for transformation 4 phases to a new normal What Now? Timing Potential impact on insurance Future State Implications for Insurers A new insurance landscape Call to action 22

24 Future State A New Insurance Landscape 42% 39% Will result in emergence of niche writers 32% Will result in new providers of insurance 29% Will have no material impact on insurance industry Will increase industry consolidation 26% Source: KPMG LLP (U.S.) s 2015 Automobile Insurance in the Era of Autonomous Vehicles Survey Results Will shift mix of personal and commercial auto business 10% Other Multiple responses allowed Over the next 10 years, many survey respondents expect emergence of niche writers and new providers of insurance Roughly one-third of executives believe this new technology will have no material impact on the industry 23

25 Agenda Alignment for Mass Change 8 elements for transformation What Now? Timing 4 phases to a new normal Potential impact on insurance A new insurance landscape Future State Implications for Insurers Call to action 24

26 What Now? Call to Action Understand your company s exposure to the change Evaluate your business strategy Align with other insurers and form partnerships CALLTO ACTION Identify andmonitor leading indicators Educate and train your people Prepare your operations Understand cost structures 25

29 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

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